Why Kevin Warsh's Job Just Got a Lot Harder. And What It Means for the Stock Market.

Warsh and the Fed now have to consider elevated inflation and a weaker economy.

Just when it seemed that Kevin Warsh's job was difficult enough, the July jobs report, released on Aug. 7, added another layer of complexity, and it could complicate the outlook for the stock market, too.

The new Federal Reserve chair took his position in May of this year amid elevated and persistent inflation. After spiking above 9% in the wake of the COVID-19 pandemic, the overall price level has been declining steadily in recent years. But the U.S. war on Iran, which began in late February, has pushed the inflation rate back up in recent months.

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Headline inflation was 3.5% over the past 12 months (as of June, the latest reading available). Even when you exclude volatile food and energy items, prices rose 2.6% over the past year. That's well above the Fed's long-term target of 2%.

But with a seemingly resilient labor market, Warsh has been focused squarely on the inflation side of the Fed's dual mandate (the other side is maximum employment).

Federal Reserve Chair Kevin Warsh. Image source: Federal Reserve.

That was upended Friday with the publication of the July jobs report. According to the Bureau of Labor Statistics, which publishes that data, the U.S. economy shed 23,000 jobs in July. And it doesn't appear to be an anomaly. Job gains have been falling since March. The economy added 214,000 new jobs that month, yet the gains have been smaller each month since then, with just 20,000 new positions in June.